NEW YORK (Reuters) - Seagate Technology (NYSE:STX - news) on Wednesday said it would buy rival Maxtor Corp. (NYSE:MXO - news) for $1.9 billion, in a deal aimed at cutting costs through a tighter production process in the notoriously competitive disk-drive market.

Seagate Chief Executive Bill Watkins said the company did the all-stock deal, priced at a 60 percent premium to Maxtor's closing share price on Tuesday, in order to acquire Maxtor's customers, rather than any specific technology.

"This is not a deal where we're acquiring a certain product," he said in an interview with Reuters. "We want to buy their customer base, their revenue stream and layer it over our manufacturing process."

The deal, would give Seagate, which makes disk drives for Microsoft Corp.'s (Nasdaq:MSFT - news)Xbox 360 gaming console as well as for personal computers, a greater than 40 percent share of the disk drive market. It currently has about a 30 percent share.

Seagate would not buy into any hot new growth area with the transaction. Maxtor specializes in providing disk drives for workhorse desktop computers used by businesses.

Analysts have said Maxtor has been losing market share to competitors like Seagate and Western Digital in consumer electronics, one of the fastest-growing businesses for computer storage companies.

Seagate CEO Watkins called the deal "an obvious consolidation play," defending the premium paid for Maxtor as fair given the $300 million of annual operating expense savings he expects would be found after the first full year after the combination.

At current prices, the transaction is worth about $7.25 a share for Maxtor investors. Maxtor's stock has not traded in that range since June 2004.

Analysts said that there were some concerns that the deal may face some regulatory hurdles, which were keeping Maxtor's shares below the deal's premium.

"There's still some doubt on the Street," said American Technology Research analyst Shaw Wu, citing antitrust worries. "The deal's never done until it's done."

Seagate's Chief Financial Officer Charles Pope acknowledged on a conference call that the antitrust review was a reason that the deal was not foreseen being completed until the latter half of 2006.

"I think that at first blush it will appear that there is a significant concentration of share," he said, adding that he does not expect the companies will need to sell any businesses to get the deal through, given the competitive nature of the industry.

"Even after this combination there will be significant competitors out there with very large resources -- both financial and technical resources," he said.

Maxtor shareholders will receive 0.37 shares of Seagate common stock for each Maxtor share they own. Seagate shareholders will own about 84 percent and Maxtor shareholders about 16 percent of the new combined company.

The combination is expected to add 10 to 20 percent to Seagate's cash earnings per share after the first full year of joint operations, Seagate said in a release.

Seagate also backed its earlier outlook for its second fiscal quarter of $2.2 billion in revenue and earnings per share in the range of 53 cents to 57 cents. It said its executive management team will continue to serve in their current roles and the combined company will retain the Seagate name.

Wow, it is amazing to me the major companies that are sprining up since 2000. Most major fortunes are made during tougher times. It is a matter of having the money and resources when others are hurting.